It is always a heart-pounding decision when buying your first big-ticket items such as a car 🚗, home 🏡 or business. The excitement of starting something new in your life may probably be filled with trepidation.
When it comes to buying your first property in Singapore, you may start to ponder – Is it the right property? Will I get the right advice? Do I want this? How much loan can I borrow? Are there hidden costs? What if it doesn’t work out? Should I invest in private condominiums or hdb flats? Where is the right location for consideration?
After all, you have never bought anything like this before. And so, the decision-making process can be a little tricky. Here are some things to consider for your first property purchase:
Do you want to invest in the long run or just for the short term? It’s essential to figure out this because you don’t want to purchase a property that may not be able to support your needs. Are you using the property for investment purposes or a permanent residence?
Your answer will determine the type of property you are looking for.
You wouldn’t want to invest in a studio unit or a one-bedroom condominium in a mass-market neighbourhood when the average family size in that area is two or more. Likewise, it wouldn’t be advisable to invest in a four-bedroom condominium in places like the Central Business District (CBD). Most expatriates are probably single or a couple whose children may not even be studying in Singapore.
Location is one of the most important factors when purchasing a property. Convenience to public transportation, daily necessities, restaurants and schools are important considerations. It will be a bonus if the house is near your workplace. There is a saying:-
“You can change the entire interior of your house, but you cannot change the location once you commit to it”.
The location of your property will play an essential part in the demand for your unit when you resell in the future.
It is also critical to check your house’s direction when purchasing a new home. For example, you don’t want to invest all of your money in a property that doesn’t help you save energy. Still, at the same time, you don’t want to buy a house facing a harsh sun, rubbish chute or loud noise-generating facility that may affect the demand for your property in the future.
Your budget should reflect your lifestyle needs. For example, if you are looking for a short term investment, it may not be the right time to buy. On the other hand, if you plan to hold your investment for an extended period, you can use the opportunity to build equity in your property.
Buying a property is a huge commitment, and there is no point to purchase a house too far out of your means and forcing yourself to scrimp and save to fund the house. Imagine buying a three-bedroom condominium and skipping annual family vacations or meals in a restaurant. Is it worth it?
Prepare an amortisation table of your monthly housing repayments and see if your expenses would fit into your wages. Always plan for the worst-case scenario if life decides to do a u-turn. For example, during the recent Covid pandemic in Singapore, homeowners auctioning their houses to the banks increased as they could not finance the mortgage loan.
Down payment 💳
The maximum Loan To Value (LTV) for HDB loans is up to 85 per cent of the property value or selling price, whichever is less. The remaining 15% downpayment can be financed using cash or your CPF (OA Account Only).
You can also take a private bank loan to purchase HDB flats. The LTV limit from private bank loans is up to 75% of the property value or selling price, whichever is lower. The remaining 25% will be split into 20%, which can be paid using cash and/or your CPF savings, and a minimum of 5% compulsory cash component.
In the event of resale flats, there is usually an Option Fee & Exercise fee of not more than S$5000 payable to the owner. This amount will be deducted from part of the cash and/or CPF savings.
Mortgages can be confusing. There are two types of mortgage loans offered by the banks. A fixed-rate mortgage loan provides a regular monthly repayment, resulting in a lower interest rate.
However, if the rate rises, it will be more expensive to repay the loan. On the other hand, a variable-rate mortgage loan allows you to lock in a low rate for a fixed period. You must factor in the maximum tenure for your mortgage loan before you even start your house hunting.
If you take up the HDB Concessionary Loan to purchase an HDB unit, the rates will be pegged to 2.6% throughout the entire 25 years of the mortgage loan tenure. For private flats, the interest rates can fluctuate from 1% to 3% or more depending on market forces.
The Singapore overnight rate (SORA) is the benchmark interest rate for loans in Singapore. It is set by the Monetary Authority of Singapore (MAS), which is based on the overnight interbank offered rate (IBOR).
Stamp duty 🧾
This is a tax charged on the purchase of a specific property. It varies depending on the value and types of the property. Property worth less than $1million will generally have a 3% Buyer Stamp Duty (BSD).
As of 20 February 2018, all residential properties with a market price of more than $1million will have a 4% BSD levied. In addition, there is another tax system known as Additional Buyer Stamp Duty (ABSD) meant for purchasers of 2nd or more properties.
Interestingly, if you plan to make payment of stamp duty via cash, it is possible to get reimbursement through your CPF account.
If you plan to rent out your property, you will need to find a suitable tenant. The process can be challenging as you may not have done it before.
However, you can do a few things to make the process easier: – Make a list of qualities you are looking for in a tenant. What are the dos and don’ts? What is provided for the tenant? Try not to limit yourself too much else you may have a hard time finding a suitable tenant.
It will help you focus your search and avoid wasting time and energy on candidates who do not fit your criteria. After knowing your criteria, you will need to list your property on the Singapore property directories to gain exposure.
Ensure you have all the black and white on hand when securing your potential tenant. You do not want them to turn your property upside down without a proper avenue to seek redress.
As a buyer, if you find it difficult to source your property, you can always engage a property agent to help you. Property agents generally have access to at least one if not several property listings site in Singapore.
Many buyers have this misconception that if they were to engage a property agent, they will likely not get the best offer for the unit they are offering. Contrary to that, most of the deals ended up with a win-win situation for sellers and buyers. The best way to get a reasonable price for your property is to work with a property agent.
A service fee is payable to the agent for assisting in the house hunting and price negotiation but is it worth the expense?
Imagine this scenario; a seller lists their house for sale at $900k. The market value of the unit is probably worth $840k. An experienced agent in this industry will know where and how to source out the fair market value. When the agent helps negotiate a price reduction of more than S$50,000, don’t you think the 1% service fee ($9,000) is well worth forking out?
On top of that, you save your precious time sourcing and arranging for viewing while doing away with the lengthy paperwork that follows. So it is definitely worth your consideration.